No Quarter

Daniel Bice | No Quarter

Feds say Bonds filed bankruptcy in bad faith

School Board President Michael Bonds wants you to know that he is trying to drop his questionable bankruptcy filing.

But here's something else you need to understand first.

Bonds did what he did only after federal lawyers ripped his bankruptcy petition.

In a recent motion urging a judge to spike his case, federal lawyers accused Bonds of filing his bankruptcy request "in bad faith" for giving apparently misleading statements about his wife. They suggested Bonds also submitted inflated or inaccurate numbers in his petition.

"He's got himself in extremely deep, hot water," said Ralph Anzivino, a Marquette University law professor who specializes in bankruptcy law.

In fact, Anzivino said he seriously doubts the bankruptcy judge will simply dismiss the case, despite Bonds' request that the judge do just that. The judge will likely ask that the School Board chief provide a full explanation for the problems and discrepancies in his filing, said the law professor.

Bonds did not return numerous calls Friday. He provided a Journal Sentinel reporter with a copy of his request to withdraw his bankruptcy petition earlier this week.

The 52-year-old school official filed for Chapter 7 bankruptcy in late May, listing assets of $242,490 and liabilities of $331,375.

Many of his debts would be wiped off the books if his petition were granted. He and his wife, Kathy, previously filed for Chapter 13 bankruptcy reorganization in 1989.

Bonds has placed much of the blame for his recent financial troubles on his wife's cut in pay, even though he filed the petition alone. She was bumped last year from her job as principal at Custer High School to a lower-paying post running a Milwaukee elementary school. They had a combined annual income of about $230,000 last year.

In July, a lawyer with the U.S. Trustee's Office issued a "statement of presumed abuse" in Bonds' bankruptcy case. In short, the lawyer, Michelle Cramer, was saying she believes Bonds may be trying to pull a fast one by having most of his debts cleared despite pulling down a six-figure salary.

Bonds called this just a "technical thing."

Recently, Cramer submitted a 12-page motion laying out the problems in Bonds' filing.

"Under (federal law), there are two bases for dismissal: (A) if the petition is filed in bad faith; or (B) the totality of the circumstances," Cramer wrote. "In this case, both conditions are present."

Specifically, Cramer said in her motion that Bonds claimed that he is legally separated or living apart from his wife, something that allowed him to exclude her income in his filing and would make it more likely that his bankruptcy go through. But Cramer wrote that Bonds has been quoted in news articles offering a different story.

Indeed, Bonds, who oversees a billion-dollar budget for more than 87,000 students, told No Quarter earlier this month that he and his wife filed for divorce in 2006 and were granted a legal separation but are now over their rough patch and are living together again.

"It is bad faith on Mr. Bonds' behalf to file a bankruptcy petition which expressly represents he and Mrs. Bonds maintain separate households, when in fact he and Mrs. Bonds live together and co-mingle income and expenses," wrote Cramer, an attorney for the U.S. trustee, who monitors bankruptcy cases.

But that's not all.

Cramer called into question many of the numbers used by Bonds to offset his monthly income. Bonds reported earning about $100,000 a year - more than double the Wisconsin median income - as a University of Wisconsin-Milwaukee professor and Milwaukee Public Schools official.

Those filing for Chapter 7 bankruptcy must complete a so-called "means test" showing they can't pay their debts.

Among other things, Bonds said on the means test that he was making monthly payments on two cars, but federal rules allow only one car payment for a person filing bankruptcy as a single individual. He also listed expenses for a 23-year-old son but has said he has no children living with him and said he doesn't claim his kids on his taxes. He claimed $400 in monthly retirement deductions, but those aren't allowed to be included in the bankruptcy calculations.

In addition, Bonds said he owes the Internal Revenue Service some $10,000, but Cramer said the lien is actually for $4,665. Also, he acknowledged during a bankruptcy meeting that his wife picks up half of the couple's $1,400 monthly mortgage on his house, though he claimed the full amount in his filing.

The federal official added that Bonds hadn't provided the documents to verify his income, deductions and expenses.

"The foregoing allegations demonstrate Mr. Bonds' bankruptcy filing is an abuse of the bankruptcy system under (federal law)," Cramer wrote.

Anzivino, the Marquette law professor, said this is serious stuff.

Bonds cannot try to blame these problems on his lawyer, J. Kenyatta Riley, who was recently dropped by the MPS official.

"It's no defense to say, 'My lawyer is a crappy lawyer,' " Anzivino said. "Bonds knew what he was doing."

U.S. Attorney James Santelle said the U.S. Trustee's Office frequently refers bankruptcy fraud cases to his agency for prosecution.

But Santelle said he didn't know if that has occurred with Bonds.

Whether that happens or not, Anzivino said, individuals cannot simply walk away from a case when they're accused of misleading federal officials in a legal document.

"People who do this should get really warned that, you know, I don't care how big a dog you are, you've got to follow the law and you're not going to get any special graces," Anzivino said. "This is a lesson for everybody else out there who thinks they're going to lie to the bankruptcy court."